Iain Martin is a political commentator, and a former editor of The Scotsman and former deputy editor of The Sunday Telegraph. He is the author of Making It Happen: Fred Goodwin, RBS and the men who blew up the British economy, published by Simon & Schuster.. As well as this blog, he writes a column for The Sunday Telegraph. You can read more about Iain by visiting his website

RBS loss is the toxic legacy of boom-time hubris

It is not often that the EU makes an announcement likely to prove popular in Britain. In ordering a cap on bankers' bonuses, as it has done today, the European Union has managed to get on the right side of public opinion. It will also probably be very popular in New York and Singapore, where they are keen to expand financial services and can expect more high finance immigration. However, the EU move on bonuses could cause confusion on the part of Ukip voters, who hate diktat by Brussels but equally tend to dislike bankers as much as they dislike Jacques Delors.

The row over bonuses today is a reminder that five years on from the financial crisis the actions of the bankers can still stir extraordinary public anger. It is not dissipating, indeed the fury seems as strong as it ever did. Bankers are still public enemy number one. For many, top end bankers embody all that went wrong in the hubristic decade that preceded the explosion. The anger at what many of them did is still so virulent mainly, one suspects, because living standards are continuing to fall and there seems to be little prospect of that changing any time soon. Incidentally, that gradual erosion of living standards is an experience shared by very many bank employees who work hard for modest salaries and are hardly ever mentioned.

Of course, the current chief executive and chairman of RBS – who today unveiled another loss – were not in post when the bank blew up. But Fred Goodwin being unavailable it falls to them to try and convince the country that the clean-up is making progress.

Sir Philip Hampton, the chairman of RBS, got a taste of the public anger when he was a guest on Nicky Campbell's Radio 5 Live. It was a fascinating set of exchanges. Callers wanted to know why – with RBS being 82 per cent owned by the taxpayer, and having been bailed out to the tune of more than £45bn – anyone at all in the bank is still getting a bonus. Hampton agreed that bonuses had been much too high in the boom years, and acknowledged that they had taken too long to fall across the industry, but explained that there had to remain some (smaller) role for bonuses to incentivise performance.

Paul in Liverpool was angry and wanted RBS to pay taxpayers back the money it has lost before it can be sold (that isn't going to happen). Helen from Stenhousemuir asked: "Who is taking responsibility for these losses within the bank? And are they getting bonuses?"

Hampton said that large parts of RBS were profitable and that the losses come from a terrible legacy. That is rooted in the huge gambles taken by the knighthood free zone Fred Goodwin. Helen said no, look at the breakdown of the computer system a while back, when customers in Ulster Bank (owned by RBS) could not access the money in their accounts. That was not related to what went before. Actually, that computer meltdown is partly a legacy issue. It can be traced back to the takeover of NatWest by the Royal Bank of Scotland in 2000. Ulster was owned by NatWest and came as part of the £21bn package. When masterminding the integration Goodwin was offered various options, although to save money he opted to bolt the NatWest computer system onto the much smaller Royal Bank set-up. At the time the City and shareholders loved all these cost savings, but it turned out that the cost savings came at a cost. Eventually, the patched together IT system fell over after Goodwin left in disgrace.

The complaints kept coming. Another customer, Joe from Edinburgh, told Hampton he was "absolutely disgusted" that current chief executive Stephen Hester would not return his phone calls. Hampton politely urged him to write a letter.

One customer wanted more than that. "Tin-Tin" in Cheltenham sought a personal visit from the RBS chairman. He was furious that he had popped in to a branch of RBS seeking a loan to start a business, left his business card and received no call back. "I want the man at the top to come to Cheltenham … to lend me the money, so I can pay it back to the people's bank, because we propped it up." Sir Philip said he had recently toured branches in that part of the country, but added: "I'm very happy to come to Cheltenham to meet Tintin."

The anger and incredulity at what happened before October 2008 is wholly understandable, sometimes I share it. I've spent many months researching and writing a book on the financial crisis and RBS (which is published this year).

But Hester and Hampton are absolutely right in one central respect, that really should not be forgotten. By the time RBS almost collapsed, and had to be rescued, it had turned into a monster with a balance sheet of £1.9 trillion which rose to £2.2 trillion. By balance sheet it briefly became the biggest bank in the world after headlong expansion at much too rapid a pace. That, the boom-time mania, and not anything that has happened since, is the root of the subsequent misery. In the run-up to the crash it borrowed too much money and behaved recklessly, like some other people in that period.